Synaptics' Q1 2025 Results: Strong IoT Growth Despite Challenges and Strategic Moves
Synaptics develops touch, display, and audio interfaces that improve application user experiences. With a rising focus on the Internet of Things (IoT), the company is improving smart device connectivity to meet edge computing and smart wearable demand. Synaptics uses a fabless business model to outsource production to third-party foundries and manufacturers for financial flexibility and scalability to suit changing market needs. Despite market headwinds, Synaptics Incorporated announced robust Q1 fiscal 2025 growth across numerous major product sectors. Synaptics' sales surged 8% year-over-year due to Core IoT devices, confirming its shift to higher-growth industries.
Q1 Fiscal 2025 Highlights
Synaptics exceeded its guidance midpoint with $257.7 million in revenue. Core IoT led with 55% revenue growth. Enterprise & Automotive saw little sequential gain, while mobile product revenues rose 14%. The company's tight cost controls and profitable revenue mix are shown by its 53.9% gross margin and $0.81 EPS.
Core IoT: Growth Catalyst
Synaptics' Core IoT business grew due to wireless connection and processors. The company's IoT design pipeline has grown to $3 billion from $2.2 billion in 2023, signaling significant long-term demand and 25-30% compounded annual revenue growth over the next five years. As new chips sample, Synaptics' ambitions to access “broad markets” in wireless communication with low-power, cost-effective solutions are positioned for market share gains.
The company reported that the number of high-performance Wi-Fi client wins had nearly doubled in three months. Synaptics will test its first Wi-Fi 7 IoT device before the end of the month, demonstrating its commitment to next-generation connectivity.
Synaptics' Astra processors won the 2024 EDGE Awards for Machine Learning and Deep Learning. Astra is used in home automation, security, and appliances. Creating AI hubs that connect various devices without cloud dependence for scalable and competitive AI solutions is a strategic priority.
PC product sales and market stabilization drove high-single-digit enterprise revenue growth. The end-of-life for Windows 10 and demand for AI-driven PCs create a huge revenue potential for Synaptics' touchpads, fingerprint sensors, and User Presence Detection technologies.
During its earnings call, the company signaled that automotive sales were hurt by market slowdowns, a reduction in outdated display driver integrated circuit (DDIC) products, and delays in adopting newer technology. Synaptics remains cautious about the category but expects a gradual rebound as market fundamentals improve.
In the premium Android market, Synaptics' touch controllers performed well. Mid-tier segment expansion is also possible. A novel frequency-based touch controller has applications beyond mobile devices.
Inventory normalization and Thunderbolt 5 support are helping the video interface segment rebound. The rapidly expanding PC market may benefit from Synaptics' DisplayLink Pro's ability to support both ARM-based and x86 platforms.
From a capital allocation and shareholder value standpoint, Synaptics announced it will use its cash to repurchase $150 million in shares. The company seeks a mix of organic development, prudent M&A, and efficient capital returns. It was refreshing to announce that the company plans to expand its personnel footprint in Taiwan, adding critical operations and technical expertise to support its customers and partners.
Looking ahead
Synaptics expects Q2 fiscal 2025 revenues of $265 million at the midpoint, indicating continued growth. Inventory management and strategic growth investment show a concentrated approach to momentum.
Due to its strong IoT growth and strategic focus on high-performance wireless connection and edge computing solutions, Synaptics' business prospects for 2025 look good. Synaptics' pipeline expansion, notably in Core IoT, shows ongoing demand and positions it as a leader in new industries like AI-driven smart devices. With advances in processors, connectivity, touch technologies, careful financial management, and capital return plans, Synaptics can exploit new market possibilities and deliver shareholder value through 2025 and beyond.
Consider that the Internet of Things (IoT) market has grown exponentially over the past decade and continues to alter industrial automation and consumer electronics, giving Synaptics an opportunity. Industry research estimates that the worldwide IoT industry was $384 billion in 2022 and should reach over $1 trillion by 2030, growing at over 13%. The rise of smart devices, 5G network connectivity, and real-time data processing in healthcare, manufacturing, automotive, and agriculture have driven this tremendous growth.
IoT has enabled predictive maintenance, streamlined supply chains, and increased operational efficiency in industry, making it essential to Industry 4.0. Smart homes, wearable gadgets, and connected health solutions have increased IoT acceptance in consumer markets due to customer convenience and data-driven services.
A fast-developing infrastructure of sensors, networking solutions, edge computing, and AI for advanced analytics and autonomous operations supports the IoT ecosystem. This network of devices is expected to exceed 30 billion connected units by 2030, demonstrating its scale and incorporation into daily life.
Synaptics' Astra play targets IoT concerns such as data security, interoperability, power management, and ease of integration. To its credit, the company recognizes that its innovation and collaboration DNA will be critical assets as IoT's rise in building future digital economies should boost Synaptics' revenue potential.
Synaptics' strategic shift toward Core IoT and novel processing solutions, together with strong financial management and capital allocation, demonstrates its commitment to market leadership and sustainable development. While automotive and other categories face headwinds, Synaptics' expansion in high-demand markets bodes well for shareholders and the industry. The company has been challenged for years to shed its mistaken reputation as a notebook touchpad and smartphone touchscreen company, and these financial and technology developments are proof positive that the company is making substantial progress in repositioning itself as a critical technology ingredient supplier.
Watch my recent SmartTechCheck podcast, recorded at its recent Technology Day in late October, which includes a deep dive interview with a Synaptics executive on its Astra initiative.
Mark Vena is the CEO and Principal Analyst at SmartTech Research based in Silicon Valley. As a technology industry veteran for over 25 years, Mark covers many consumer tech topics, including PCs, smartphones, smart home, connected health, security, PC and console gaming, and streaming entertainment solutions. Mark has held senior marketing and business leadership positions at Compaq, Dell, Alienware, Synaptics, Sling Media and Neato Robotics. Mark has appeared on CNBC, NBC News, ABC News, Business Today, The Discovery Channel and other media outlets. Mark’s analysis and commentary have appeared on Forbes.com and other well-known business news and research sites. His comments about the consumer tech space have repeatedly appeared in The Wall Street Journal, The New York Times, USA Today, TechNewsWorld and other news publications.
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